Extrajudicial Settlement of Estate in the Philippines

A comprehensive Philippine-law primer (for information only, not legal advice)

1. Concept and Legal Foundations

Key Points	Details
Definition	Extrajudicial settlement (EJS) is an out-of-court method by which the heirs divide and transfer a decedent’s estate through a notarized deed, instead of filing a testate or intestate proceeding.
Governing Law	Rule 74 of the Rules of Court (“Summary Settlement of Estates”)—particularly §§ 1–4—supplemented by the Civil Code, Tax Code, the Notarial Law (RA 11594, amending RA 2103), and pertinent BIR, Registry of Deeds (ROD) and LGU regulations.
Rationale	To simplify small or uncontested estates, save time and litigation costs, and unclog the courts.

2. When Extrajudicial Settlement Is (and Isn’t) Allowed

2.1 Mandatory Preconditions

No will – The decedent must have left no valid will (or the will was not probated).
No outstanding debts – Or all known debts have been fully paid; otherwise the estate must pass through court supervision (intestate or probate).
Heirs’ unanimity – All heirs (including compulsory heirs) must agree on the partition and sign the deed personally or through duly-appointed attorneys-in-fact.
Competent representation – Minors or incapacitated heirs need a legal guardian or parent (with court approval if required).
Estate size – Rule 74 does not impose a peso ceiling, but BIR and LGUs often flag large, complex estates for judicial settlement.

Tip: Even if the above elements exist, the parties may choose a judicial proceeding if they anticipate disputes, hidden assets, or contingent claims.

2.2 Common Disqualifications

Disqualifier	Consequence
Will exists and is offered for probate	Must file probate; EJS barred.
Known/opposed creditor appears within 2 yrs	Creditor may sue the heirs; the property is subject to a 2-year lien under Rule 74 §4.
Heirs disagree on shares	Partition suit or intestate proceeding becomes necessary.

3. Forms of Extrajudicial Settlement

Form	When Used	Core Document
(a) Deed of Self-Adjudication	Only one legal heir (e.g., widow, sole child)	“Affidavit of Self-Adjudication”
*(b) Deed of Extrajudicial Settlement of Estate* (with or without Waiver)**	Two or more heirs amicably divide the estate	“Deed of EJS and Absolute Sale,” “EJS with Waiver of Rights,” etc.
*(c) Settlement & Partition* involving Non-heirs**	E.g., sale to third party simultaneous with settlement	Same deed; 3-in-1 instrument

4. Step-by-Step Procedure

4.1 Drafting and Notarization

Gather facts and supporting docs
- PSA death certificate, marriage contract, birth certificates (to prove filiation), TINs.
- Certified true copies of titles, tax declarations, OR/CR for vehicles, stock certificates, bank statements.
Prepare the deed (plain-language, single-spacing; include):
- Jurisdictional averments (name, citizenship, date/place of death, “died intestate”).
- Affirmation of no debts or statement that debts have been settled.
- Complete list of heirs with shares (use percentage or specific descriptions).
- Complete schedule of properties with technical descriptions and assessed/market values.
- Covenants: delivery of possession, assumption of taxes, Rule 74 §4 lien acknowledgement.
Signatures & notarization
- All heirs (or attorneys-in-fact) appear before a Philippine notary.
- Notary enters deed in the notarial register and retains a copy of IDs.

4.2 Publication Requirement

Publish an abstract of the deed once a week for three consecutive weeks in a newspaper of general circulation in the province where the estate is settled (Rule 74 §1).
Attach the publisher’s Affidavit of Publication to the deed when registering property.

4.3 Tax Compliance (BIR)

Task	Notes
File Estate Tax Return (BIR Form 1801)	Within 1 year from the date of death (Tax Code §90; extensions possible).
Pay estate tax	6 % of the net estate; EJS is not validly registered without the BIR eCAR.
Avail of Estate Tax Amnesty (RA 11956)	For deaths up to May 31 2022; availment extended until June 14 2025; reduced rates & penalties condoned.
Secure eCAR	Electronic Certificate Authorizing Registration—the golden ticket for ROD/LGU.

Reminder: Estate tax is computed on net estate (gross assets minus allowable deductions such as funeral expenses, medical expenses, standard deduction ₱5 million, family home up to ₱10 million, etc.).

4.4 Transfer of Real Property

LGU Taxes – Pay transfer tax at the Treasurer’s Office (commonly 0.5 % of zonal value or FMV).
Register with ROD – Present original owner’s duplicate title, deed, BIR eCAR, tax clearances, DAR clearance (if agricultural), and proof of publication.
Issuance of new TCT/CCT – Each heir/transferee receives a separate title or a TCT in common if still undivided.
Annotation of Rule 74 Lien – ROD annotates a notice that creditors have two years to file claims.

4.5 Transfer of Personal Property

Asset	Mechanism
Bank deposits	Bank requires deed, IDs, tax waiver (BIR Form 1954) & BIR clearance.
Stocks/Shares	Submit deed and eCAR to the corporate secretary; transfer noted in Stock & Transfer Book.
Vehicles	Deed + eCAR + OR/CR to LTO; secure new CR under heirs’ names.

5. Effects and Post-Settlement Risks

Immediate ownership – Title passes to heirs upon signing; registration perfects notice.
Rule 74 Two-Year Lien – Creditors (or omitted heirs) may sue within 2 years from the date of publication; property can be attached or heirs solidarily liable.
Fraud or coercion – Deed may be annulled within 4 years (Civil Code arts. 1390-1391).
Late estate tax – Surcharges (25 % – 50 %), interest (20 % p.a. simple), compromise penalties.

6. Comparison: Extrajudicial vs. Judicial Settlement

Feature	Extrajudicial	Judicial (Intestate/Probate)
Timeline	Weeks to a few months	Several months to years
Cost	Notary, publication, taxes	Filing fees, bonds, lawyer’s fees, administrator’s commissions
Publicity	Minimal (newspaper notice)	Open court pleadings & hearings
Court Supervision	None	Continuous; court approves inventory, accounting, partition
Best For	Simple, uncontested estates with no debts	Wills, disputed shares, unknown creditors, large or complex holdings

7. Practical Drafting Tips

State full technical descriptions of real property to avoid ROD re-checks.
Attach a notarized Secretary’s Certificate if shares of stock are involved.
Insert indemnity clauses among heirs for undisclosed liabilities.
Use consistent valuations (zonal, FMV, or appraised) across BIR and LGU forms.
Secure TINs for minor heirs; BIR requires them before issuing eCARs.
Scan and keep e-copies; ROD/BIR may ask for digital submissions.

8. Frequently Asked Questions (FAQ)

Can we file EJS if the estate has small unpaid utility bills?
- Best practice: settle even nominal debts first. EJS requires a sworn declaration of no outstanding debts.
Must we publish if the estate is purely personal property?
- Yes. Rule 74 makes no distinction; publication protects creditors.
What if one heir is abroad?
- They may execute a Special Power of Attorney authenticated by the Philippine Consulate.
Are capital gains tax and DST due on intra-family transfers?
- No CGT on conveyances by inheritance; but documentary stamp tax (₱15/₱1,000 value) and transfer tax still apply.
Can heirs sell the property immediately after EJS?
- Yes, but buyers often wait for the 2-year creditor period to lapse or require indemnity bonds.

9. Penalties and Criminal Liabilities

Violation	Statutory Basis	Possible Penalty
False statement in affidavit	RPC art. 171 (falsification)	Reclusión temporal & fine
Tax evasion / undervaluation	Tax Code §254	Fine ₱500k-₱10 M + imprisonment 6-10 yrs
Unlicensed notarial act	Notarial Law; Code of Professional Responsibility	Administrative, civil, criminal sanctions

10. Timeline Snapshot (Typical Simple Estate)

Death (Day 0) → gather docs
Draft deed & pay debts (Day 30-45)
Notarize deed (Day 45)
Publish notice (Day 50-70)
File estate tax & get eCAR (Day 60-120)
Pay LGU transfer tax & register with ROD (Day 90-150)
New titles/registrations released (Day 120-180)
Rule 74 lien lapses (2 years after final publication)

11. Checklist

Death certificate (PSA)
Heirs’ valid IDs & TINs
Titles/Tax declarations/ORCR/Stock certs
Proof of debt payments or certifications of no debt
Draft deed (EJS or Self-Adjudication)
Publication schedule & affidavit
Estate Tax Return + eCAR
LGU taxes/transfer fees paid
Registration with ROD/LTO/Corporate Secretary
Secure certified true copies of new titles

Conclusion

Extrajudicial settlement is a powerful yet strictly conditional shortcut under Philippine law. Observe the statutory safeguards—especially the “no-debts” rule, unanimous consent, notarization, publication, and prompt payment of estate tax—to ensure that the transfer of the decedent’s estate is valid, enforceable, and free from future claims. When in doubt, seek competent Philippine legal counsel; mistakes in estate settlement are often costlier than a well-planned compliance strategy.